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The price of sugar increases by 20%, by what % should a housewife reduce the consumption of sugar so that expenditure on sugar can be same as before ?
(a) 15%
(b) 16.66%
(c) 12%
(d) 9%
( Correct ans = b)
My answers:
1st answer:
say p= 100, Q= 100 initially, so expenditure= 10000
now, new P =120, so keeping expenditure same, we get Q= 10000/120= 83.33,
so percentage decrease in Q= [(100- 83.33) /100 ]*100= 16.67%
2nd answer:
elasticity= 1= % change in Q/ % change in P = % change in Q/ 20
so, % change in Q= 20%
( Had we taken [(100- 83.33) /83.33] *100= 20% only)
What mistake am I incurring in 2nd answer(elasticity )??plz help
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